Advanced Power Systems v. Hi-Tech Systems, Civ. No. 90-7952.

• Decision Date: 03 August 1992
• Docket Number: Civ. No. 90-7952.
• Citation: 801 F. Supp. 1450
• Parties: ADVANCED POWER SYSTEMS, INC. v. HI-TECH SYSTEMS, INC., et al.
• Court: U.S. District Court — Eastern District of Pennsylvania

801 F. Supp. 1450

ADVANCED POWER SYSTEMS, INC. v. HI-TECH SYSTEMS, INC., et al.

Civ. No. 90-7952.

United States District Court, E.D. Pennsylvania.

August 3, 1992.

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Francis X. Manning, Philadelphia, Pa., John B. Hammalian, Stephen R. Harris, Wayne, Pa., for plaintiff Advanced Power Systems, Inc.

Roy S. Cohen, Stephen N. Huntington, Philadelphia, Pa., James R. Freeman, Phoenixville, Pa., for defendant Hi-Tech Systems, Inc.

MEMORANDUM

LOUIS H. POLLAK, District Judge.

This action presents competing claims between two vendors of battery power systems for telecommunications, computers, and machinery. Plaintiff Advanced Power Systems, Inc. ("APS") was formed in 1989 by two former employees of defendant Hi-Tech Systems, Inc. ("Hi-Tech"), Gregory Presson and James McDevitt. These companies are now direct competitors. APS filed suit against Hi-Tech and its principals, claiming that they engaged in a series of activities designed to undermine APS's operations and competitiveness. The complaint included various state law causes of action, among these misappropriation of trade secrets and civil conspiracy, and a RICO claim. Thereafter, in a flurry of counterclaims and amended counterclaims, Hi-Tech made similar allegations against APS, Presson, and McDevitt. At issue today is the motion of plaintiff APS to dismiss all eight counts of the amended counterclaim for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6).¹

I. Factual and Procedural History

Hi-Tech's amended counterclaim — which is actually its third amended counterclaim — tells the following story, the content of which is taken as true for purposes of this motion. Hi-Tech was founded by defendant Robert Smith in August, 1982 to sell battery power systems. Gregory Presson, now the president of APS, worked for Hi-Tech from March, 1984 until April, 1989, at which time he resigned as Standby Power Sales Manager. James McDevitt, the other principal of APS, worked for Hi-Tech for approximately three years until he was discharged on September 13, 1988 from his job as service manager. Although they left Hi-Tech, Presson and McDevitt took with them a valuable computer program developed by Hi-Tech containing a variety of information about Hi-Tech's customers and put it to use at APS. Additionally, APS convinced seven Hi-Tech employees to come to work for APS.

While at Hi-Tech, Presson and McDevitt worked mostly on sales and services for Hi-Tech's largest customer, the Rolm Division of IBM. Shortly after Presson left Hi-Tech to start APS, APS became an approved subcontractor to IBM. In December of 1989, approximately seven months after Presson's departure from Hi-Tech, Hi-Tech received a letter from IBM canceling the bulk of Hi-Tech's service business with IBM. That letter was signed by one of Hi-Tech's major sales contacts at IBM, A.M. Verna, who now works at APS. In the following year, Hi-Tech continued to lose IBM's business, which went to APS. Although IBM claimed to select its suppliers through a low price bidding process, APS managed to obtain inside information that ensured it favored status in this process.

Hi-Tech's third amended counterclaim has a rather storied history. Hi-Tech initially filed a counterclaim against APS on December 22, 1990, three days after removing the action from state court. After amending the counterclaim one month later, Hi-Tech filed a second amended counterclaim on February 19, 1991, adding Gregory Presson and James McDevitt as additional counterclaim defendants. Plaintiff moved to strike the second amended counterclaim on the ground that it was filed without the leave of court. On April 15, 1991, I dismissed defendant's first and second amended counterclaims, without disturbing defendant's right to petition for leave to file a third amended counterclaim. One month later, Hi-Tech petitioned for leave to file a third amended counterclaim that was substantially identical to its second amended counterclaim. Subsequently, APS was given leave to amend its complaint; therefore, Hi-Tech no longer needed permission to amend its counterclaim — amendment becoming a matter of right in light of plaintiff's revised complaint — and, on January 30, 1992, I dismissed Hi-Tech's motion for leave to file a third amended counterclaim as moot. Hi-Tech's third amended counterclaim having superseded its second amended counterclaim, plaintiff's motion to dismiss the second amended counterclaim, filed on November 19, 1991, was essentially turned into a motion to dismiss the third amended counterclaim. This motion to dismiss the third amended counterclaim is presently under consideration.

The third amended counterclaim ("the counterclaim") contains various allegations of appropriation of trade secrets, conversion, conspiracy, and tortious interference with business relations, as well as violations of Section one of the Sherman Act. I will examine these eight counts in turn.

II. The Motion to Dismiss

A. Misappropriation of Trade Secrets

The counterclaim alleges that Presson and McDevitt appropriated trade secrets both by taking a computer program and data containing information about defendant's customers and by inducing Hi-Tech employees to leave that company and join APS. Plaintiff argues that the count is deficient in two ways. First, it contends that the counterclaim fails to state how this property wrongfully came into APS's possession. Second, it claims that, as against Presson and McDevitt, the claim is barred by the statute of limitations.

Insofar as plaintiff objects to Count I's failure to document the circumstances under which the information ended up in the possession of APS, plaintiff demands a degree of specificity in pleading that Federal Rule of Civil Procedure 8 abjures when it calls only for a "short and plain statement of the claim." See 5A C. Wright & A. Miller, Federal Practice and Procedure § 1357, at 321-22 (1990) ("Rule 8 indicates that a complaint need only set out a generalized statement of facts from which defendant will be able to frame a responsive pleading.")

To state a claim under the tort of misappropriation of trade secrets in Pennsylvania, the complaint must allege (1) disclosure or use of a trade secret that was "discovered by improper means" or (2) disclosure or use that "constitutes a breach of confidence". Den-Tal-Ez, Inc. v. Siemens Capital Corp., 389 Pa.Super. 219, 566 A.2d 1214, 1228-29 (1989). APS contends that Presson and McDevitt had legitimate access to the computer program and data by virtue of their employment with Hi-Tech and therefore, presumably, did not improperly discover it. Regardless, that access would not entitle them to take the program or data with them when they left to form APS. An employee in whom confidence is reposed has an obligation to maintain the confidentiality of his employer's trade secrets and may not appropriate them for his own benefit. See Wexler v. Greenberg, 399 Pa. 569, 160 A.2d 430 (1960); Morgan's Home Equipment Corp. v. Martucci, 390 Pa. 618, 136 A.2d 838, 842 (1957). By the same token, defendant sufficiently pleads APS's wrongful use of a trade secret by alleging that APS accepted and used information that it knew had been taken from Hi-Tech in violation of confidence. See Rohm and Haas Co. v. Adco Chemical Co., 689 F.2d 424, 429-30 (3d Cir.1982).

Also unpersuasive is APS's contention that the claim of misappropriation of trade secrets is barred by the applicable two year statute of limitations with respect to Presson and McDevitt. See 42 Pa.Cons. Stat.Ann. § 5524 (1987). The parties apparently agree that the alleged misappropriation occurred in April, 1989. Presson and McDevitt were named in an amended counterclaim filed February 19, 1991, within the statutory period. However, that amended counterclaim was dismissed, and a motion for leave to amend the counterclaim and the proper amended counterclaim were not filed until May 16, 1991, approximately one month after the close of the statutory period.² The question, then, is whether the May 16th motion "relates back" to the timely, original counterclaim and thereby falls within the statute of limitations.³

The amended counterclaim seeks to join additional parties as counterclaim defendants; therefore, the appropriate starting point is Fed.R.Civ.P. 15(c),⁴ which sets out the conditions for "relating back" with respect to "changing a party".⁵ In Schiavone v. Fortune, 477 U.S. 21, 106 S.Ct. 2379, 91 L.Ed.2d 18 (1986), the Supreme Court spelled out the relevant requirements for changing a party under Rule 15(c) as follows:

(1) The basic claim must have arisen out of the conduct set forth in the original pleading; (2) the party to be brought in must have received such notice that it will not be prejudiced in maintaining its defense; (3) that party must or should have known that but for a mistake concerning identity, the action would not have been brought against it; and (4) the second and third requirements must have been fulfilled within the prescribed limitations period.

477 U.S. at 29, 106 S.Ct. at 2384.

Because the amended counterclaim recounts the same events described in the original pleading, and, indeed, essentially differs from the original counterclaim only in its caption, there can be no serious dispute that the first condition is satisfied. Therefore, I turn to the notice requirement, which is the "critical element" in deciding whether an amendment relates back, Avila v. Immigration and Naturalization Serv., 731 F.2d 616, 620 (9th Cir.1984),⁶ even in the context of additional parties. See E.E.O.C. v. Westinghouse Elec. Corp., 632 F.Supp. 343, 364 (E.D.Pa.1986), aff'd in part, vacated in part, 869 F.2d 696 (3d Cir.1989).

Notice, to be effective under 15(c), need not be formal. Fed.R.Civ.P. 15(c) advisory committee's note (1966); see Varlack v. SWC Caribbean, Inc., 550 F.2d 171 (3d Cir.1977) (restaurant manager received sufficient notice when he...